from the ebay-for-patent-trolls dept

Ocean Tomo is a company that's been around for a few years, trying to establish itself as the auction house for patents. I've already made clear how troubling I believe its business model to be, but the company always tries to put a friendly face on it, claiming that it's not about aiding so-called "patent trolls" but actually reducing the problem of patent trolling. However, that (of course) isn't what's actually happening. A patent on personal recommendation systems ("if you bought x, you'll like y") was bought via Ocean Tomo by what seems likely to be a bunch of lawyers under the company name Quito (though, it's not entirely clear who's involved) and is now being used in a lawsuit against thirteen big internet companies that employ any type of rating system. The companies being sued are: Netflix, Amazon, Yahoo, RealNetworks, last.fm, Pandora Media, Slacker Inc., Veoh, Hulu, NBC Universal, CBS, News Corp., and Strands.

As you look through that list, you'll recognize that some have done significantly innovative work in taking the concept of an online recommendation system and actually making it useful. The simple idea of doing recommendations is pretty straightforward. Making it work well? Not so much. Hell, that's why Netflix is offering $1 million to anyone who can improve their recommendation engine by just 10%. The basic ideas expressed in the patent are not where the value in these recommendation systems lies. It's in the actual effort of figuring out how to make them work better. This patent has nothing to do with the actual success of a recommendation system, but the holders of it may now get a pay day just for holding the patent, thanks to Ocean Tomo's auctions. And, of course, this means that all of those companies that were actually innovating will, at the very least, now need to spend legal dollars defending against this massive innovation blocker.

from the clarifying dept

As we've been writing about the MPAA's odd lawsuit against RealNetworks for its RealDVD
DVD ripping product, we've pointed out (multiple times) how it doesn't make much sense.
The problem was that there are tons of much more effective DVD ripping products out there.
Unlike RealDVD, they don't hobble the ripped copies. So, shutting down RealDVD doesn't do
anything to stop piracy -- and if anything only increases it, as those who want to rip
DVDs are more likely to just download one of those free products that don't encumber the
resulting rip with more DRM. Thus, people will still be copying DVDs, and will do so in a
way that is a lot more "piratable" than if the MPAA let RealDVD live.

So why is the MPAA doing what it's doing?

The EFF has stepped up with theory that makes a lot of sense: this has nothing to do with
stopping piracy, and everything to do with controlling how innovation happens in the
movie market. The movie studios that make up the MPAA believe that they own
the movie business, and thus any innovation in the industry needs to come through them and
get their approval. What Real is doing with RealDVD is ignoring the MPAA's "approval"
process, and effectively taking the path of innovation out of the studios' hands.

If this sounds familiar, it's because this has what's been going on with almost all
of the "anti-piracy" battles over the last decade. Napster wasn't so much about stopping
piracy (which of course, didn't work in the slightest), but about the RIAA record labels
freaking out that someone else (a college kid, no less) had established a much
better and more efficient distribution mechanism without getting their approval and
running it through their filter first.

Effectively, the Big Content players believe that they own their industries, and
innovation should come from the top down through the paths that they choose. Thus, these
sorts of lawsuits will continue until the management of these firms recognize that
innovation is a bottom-up phenomenon. Or, the big firms go out of business. Whichever
comes first.

from the not-ready-to-give-in dept

Earlier this week we noted that the judge in the lawsuit over the RealDVD software had placed a secret temporary injunction against RealNetworks selling the software. The original promise was that a more permanent injunction -- or a lifting of the injunction -- would come Tuesday. But Tuesday has come and gone and the judge has decided she needs more time to decide on an injunction, and may want to consult some "experts" on the subject.

I can understand the desire to better understand the situation, but it's hard to see how preventing the sale of the software in the meantime does any less harm to the movie industry. In fact, you could easily make the argument that it does more harm to the industry, based on the way the industry defines harm. That is, right now, if someone wants to make a backup copy of a DVD, they're going to look online and find a variety of free ripping options, that offer no additional DRM and make totally free and clear rips. If Real's software was out there, they might discover that option and pay to get additional DRM (why, I don't know -- but some might feel comfortable with the Real brand, for example). Thus, it's difficult to see how the movie industry is any worse off if Real's software is on the market. In that scenario, at least some might end up with ripped DVDs with DRM. Without Real on the market, those who want to rip DVDs will have their rips with no DRM at all.

from the questions,-questions,-questions dept

Monday morning, we wrote about how a judge had issued a temporary restraining order against RealDVD until he had time to review the details and rule one way or the other on a pre-trial injunction. In our comments, one of our readers suggested this story was incorrect, as there didn't appear to be an actual restraining order on file -- suggesting that Real Networks may have pulled the software on its own. Yet, it turns out that, yes, in fact there was a temporary restraining order, but the judge ordered both sides to keep it secret. This is quite odd, as almost everyone immediately figured it out from Real pulling the software, and then it was confirmed by Real in a filing responding to the court. But all this does is raise a simple question: what could possibly be the rationale for keeping the temporary injunction secret?

from the who-does-this-help? dept

In the lawsuit between the movie studios and RealNetworks over Real's DVD ripping software, RealDVD, it appears that a judge has issued a temporary injunction against Real, keeping the company from distributing the software until the judge has had a chance to read through the various documents. A more complete decision allowing or disallowing the sale prior to a trial should come on Tuesday. Of course, the movie studios will claim that Real should be barred from allowing the software to be sold because it will cause "irreparable harm." That, of course, is ridiculous. Real's software only lets you make limited backups, by putting its own DRM on the copies. If someone really wants to make backups, and Real's software isn't available thanks to an injunction, then they'll most likely get a copy of other DVD ripping software that doesn't even include the limitations that Real's does. In other words, in taking RealDVD off the market, as the studios would like, it actually would probably lead to more movies being copied without DRM than if RealDVD were on the market. On a separate note, it appears that Real's decision to rush to court and file for a declaratory judgment on this case was a wise move. The lawsuit has been moved from Southern California, where the studios filed suit later in the day, to Northern California, where Real filed suit in the morning.

from the fun-to-watch dept

As was widely expected when RealNetworks announced plans to release some DVD ripping software, the lawsuits are now flying. RealNetworks rushed to court to ask for a declaratory judgment, though the MPAA admitted it had its own lawsuit ready to go as well. Real getting to the courthouse faster may mean slightly more favorable jurisdiction for the company. In the meantime, it seems like the MPAA is facing a huge uphill battle here, as Real's software includes its own DRM, so it's hardly a case of allowing widespread copying. Plus, making personal backups is allowed under copyright law. The real issue is where two conflicting parts of the law collide: the right to make personal backups and the DMCA's prohibition on circumventing DRM. Real claims that since it adds its own layer of DRM, the studios' DRM is not circumvented. That may make the most sense from the standpoint of the lawsuit, but it still seems like a strong case could be made by simply focusing on how people have a right to make personal backups. Of course, this lawsuit is something of a marketing stunt. There are better DVD rippers out there that are available for free, so it's difficult to see Real ever getting very far with this product, no matter what happens with the lawsuit.

from the legal-battles-on-the-horizon dept

You may remember about six years ago, a company named 321 Studios released a product called DVD X Copy, that was designed to allow you to rip a DVD to a digital file on your computer. Despite the fact that the law is clear that making a backup copy like this is perfectly legal, the problem (from the movie studios' perspective) was that this software got around the encryption they put on DVDs, and thanks to the "anti-circumvention" clause of the DMCA, the act of getting around that DRM (even if for a perfectly legal reason) was illegal. Unfortunately, 321 Studios lost that suit and eventually went out of business, when it became to expensive to continue to fight the studios. It was a very bad ruling, highlighting the more ridiculous aspects of the DMCA, but without anyone else willing to take the case further, not much has happened in the space since. There are plenty of DVD ripping tools out there, but none from a major company... until now.

Apparently, Rob Glaser over at RealNetworks is so desperate for some attention that Real is releasing its own DVD ripping program, though it's loaded down with its own limitations. You'll only be able to watch the movie on the machine you ripped it to -- or can transfer it to another machine, but with a limit of 5 machines, and each of those machines has to have a purchased copy of the same software. In other words, while it rips the movie, it puts its own restrictive DRM on it as well, which hardly seems appealing -- especially at $30, when there are DVD ripping products for free that don't have such restrictions.

Yet, the nameless Hollywood insiders still think that Real will get sued over the product, which is probably what Glaser is hoping for (in order to get the free press). So, even if the product is likely to be a dud, the resulting lawsuit could be pretty important in determining the limitations of the DMCA's anti-circumvention clause -- or, at least, reminding the American public that the DMCA's anti-circumvention clause leads to ridiculous situations, such as making it illegal to provide a product that does perfectly legal things.

from the highway-robbery dept

You may recall a couple weeks ago that a judge set new rates to be paid to ASCAP by AOL, Yahoo and RealNetworks. ASCAP represents the songwriters, and those three companies and ASCAP could not agree on licensing terms for music streamed online. While ASCAP ran around touting the (somewhat made up) $100 million owed, there was plenty more in the decision that deserved discussion. At last week's San Francisco Music Tech Summit, I got into an interesting discussion with a few folks who had read through the 153 page decision thoroughly, and noticed a variety of problems. You can read the whole decision (pdf) yourself, if you want, but there are a few key points that are extremely disturbing, and could spell a lot of trouble. Basically, there's a meaningless "formula" that's applied to a very large segment of these companies' revenue, taking a huge chunk of money that seems beyond reasonable.

The judge seems to consider what AOL and Yahoo do somewhat equivalent to the way TV stations use music, and refers back to the rate agreements set up with various TV networks, despite vast differences in the way these websites operate. It suggests a misunderstanding between the difference between broadcast and interactive content. But what's really troublesome, is when you look at the overall formula for how the royalties are set. It clearly overvalues the music, and undervalues just about every other part of these three companies' businesses. The formula is, basically, the total revenue made by any business unit (minus a few specific costs) multiplied by a bizarre fraction (called the music-adjustment fraction): total number of hours that music is streamed, divided by total number of hours used on the website. Then, you take the result of that and multiply it by the "rate fee" of 2.5%.

This formula is applied to revenue coming in from any business unit that is considered to have used music. This includes things like Yahoo's search engine. That's because Yahoo (smartly, from a consumer perspective) allowed users who searched on a musician or song to stream that song directly from the search results. But, in making that so user friendly, the company has now opened up its cash cow search revenue to this formula, despite the fact that it's incredibly difficult to think that music has anything to do with nearly all of the revenue Yahoo makes from this site. Similarly, RealNetworks has almost its entire consumer division revenue included in this formula, despite the fact that it makes a ton of revenue from its gaming business. Wondering why RealNetworks decided to spin off the gaming business a week after this decision was announced? Maybe because a rate court judge just chopped off a huge chunk of revenue from it and handed it over to songwriters who have nothing to do with these games.

As for the formula itself, it makes little sense. The "music-adjustment fraction" is a totally meaningless number. The number of hours music is streamed is hardly an indicator of how much of a site's revenue is actually music based. If I have music streaming in the background all day, but am still using the site for other purposes, it seems ridiculous to include all of that as music-based revenue. The denominator of the fraction is "total number of hours on the website" which is also a totally meaningless and unrelated number. Even worse, since the court notes that none of these sites actually track that information, the judge ruled that everyone should just use Comscore's numbers instead -- the same Comscore that most people admit is not particularly accurate. So, basically, you're dividing a meaningless number by an even more meaningless number and multiplying it by the total revenue of units who often have very little to do with music, and then taking 2.5% of that. If anything, this ruling should make any site think twice before including any streaming audio from any ASCAP-affiliated songwriters.

from the watch-for-the-appeal dept

In the latest of many arguments about the various rights and payments companies need to pay for streaming music online, a district court has ruled that AOL, Yahoo and RealNetworks most likely owe millions to ASCAP for songs that they streamed to users between 2002 and today (and continuing on to 2009). This has nothing to do with the record labels -- ASCAP represents the songwriters -- but is yet another extraneous "license" where the terms are hardly clear, but basically serve to make it more difficult for anyone to play music. It was never in question that these sites would need to pay some kind of royalty -- the question was how much. The odd part of this ruling, though, is that the rate set by the judge is likely to be higher than the rate that traditional terrestrial radio pays. If there ever were a formula for making companies less interested in streaming music online -- this might be it. Of course, it's quite likely that this ruling will be appealed, so it's far from over.

from the keep-trying dept

In the ongoing saga of Scrabulous, the unauthorized online version of Scrabble that has found many fans on Facebook but has upset Mattel and Hasbro (who own the rights to Scrabble), it appears that RealNetworks and Mattel have finally put out an official version of Scrabble for Facebook -- but the problem is that it's terrible. As the NY Times reports, "Facebook Scrabble takes a long time to load, does not always quickly update to show recent moves, and the words the game will accept do not reflect standard Scrabble dictionaries, or even the English language." While it's nice to see that Scrabulous still hasn't been forced offline, it seems odd that the authorized version is so terrible. It still probably would have made the most sense to just do a deal with the brothers who created Scrabulous (and there are still rumors that a deal has been discussed, but without a decent resolution), but if that doesn't work, the way to compete is with a better product. Putting out a product that's not very good isn't likely to win over many fans.